BNY cites comments from ECB Executive Board member Isabel Schnabel arguing for a June rate increase, as Middle East energy shocks create persistent inflation pressures. She warns that the Euro area has moved beyond prior adverse energy scenarios, with second‑round effects broadening, and stresses that maintaining ECB credibility requires a timely policy response despite growth risks.

Energy shock supports tighter ECB policy

"ECB Executive Board member Isabel Schnabel has said the European Central Bank should raise interest rates at its June meeting, arguing that the energy shock linked to the Middle East conflict is too large and persistent for policymakers to ignore."

"Speaking to Reuters, Schnabel stated that even if the war were to end immediately, damage to energy infrastructure and supply chains had already created lasting inflationary pressures that would require a monetary policy response."

"She warned that the euro area has effectively moved beyond the ECB’s previous adverse energy scenario and highlighted growing evidence of second-round inflation effects spreading beyond energy into broader consumer prices and non-energy industrial goods."

"While acknowledging downside risks to economic growth from weaker confidence and higher energy costs, Schnabel stressed that maintaining the ECB’s anti-inflation credibility required a timely policy response."

"Bonds are mixed, with the ECB and BoJ signaling higher rates to come, while USD is down 0.25% since Friday."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)